As Valeant Pharmaceuticals struggles to recover from blistering criticism over its pricing and accounting practices, the drug maker is now being slammed for paying hefty retention bonuses to several executives.
In a regulatory filing earlier this week, the company disclosed that as much as $10.8 million will be handed out to three executives by the end of this year. In a form letter that was also filed, Valeant’s new Chief Executive, Joe Papa, noted these are “challenging times for our company.”
Indeed, Valeant is under investigation by numerous federal and state authorities over its relationship with a defunct mail-order pharmacy, its patient assistance programs, and its pricing practices, which involved buying drugs and jacking up prices, the basis of its growth strategy.
The company is reportedly looking to sell some assets, including the two heart drugs whose prices were raised so high last year that the move touched off congressional hearings. The Valeant board, meanwhile, was just overhauled and hedge funds are dumping Valeant shares, which have collapsed.
With all this going on, it’s not surprising that Papa would try to offer bonuses to keep Valeant managers rather than find a whole new team at once.
To some, though, the move suggests that Valeant also has the proverbial tin ear. After all, the bonuses will be paid from revenues that were generated by taking huge price hikes on many drugs, which is what transformed the company into a poster child for corporate greed.
“We are surprised by these bonuses as we believe this opens the company up to criticism of being brazen in the face of public and government scrutiny for pricing practices,” wrote Wells Fargo analyst David Maris in an investor note.
“It is not hard to see the criticism that the retention bonuses are being paid with money Valeant gained through excessive price increases and being paid to executives who in part helped oversee these pricing programs.”
A spokesman for Valeant declined to comment.
Maris goes on to point out that Robert Rosiello, the chief financial officer and executive vice president; and two other executive vice presidents, Anne Whitaker and Ari Kellen, all held the same managerial roles as Valeant struggled through myriad legal, regulatory, and accounting problems.
Rosiello, for instance, will receive a $1 million cash retention bonus and a $2.8 million special equity award beyond his salary and bonus if he remains with Valeant through the end of the year. Maris noted that before Rosiello joined Valeant last July, the executive spent 30 years at the McKinsey consulting firm and had never previously worked as a chief financial officer at a publicly traded company.
“This is the CFO of a company which, in the past year, has lowered guidance substantially, disclosed material weaknesses in internal control over financial reporting, and became subject to an SEC investigation,” Maris wrote.
Then again, Papa may be right — attracting new talent to a company with a failed business strategy has got to be challenging.